JPMorgan Chase provided more evidence of a recovering banking sector, posting a surprisingly strong quarterly profit of US$2.7 billion in a critical earnings week for the industry.
Thursday’s report by the second-biggest US bank by assets followed a better-than-expected report from Wall Street bank Goldman Sachs earlier in the week.
The rebound in the troubled sector, into which the US government injected tens of billions of dollars to help ease a global credit crisis, was to get another test yesterday with quarterly results from Citigroup and Bank of America.
Yet the improving outlook for the sector is clouded by a potential collapse of large business lender CIT Group, which failed in its bid for a fresh government bailout and appeared headed for bankruptcy.
Simon Johnson, an economist at the Massachusetts Institute of Technology, said CIT was not “too big to fail” despite its large portfolio.
“CIT’s small and mid-size customers are important to the recovery. But the reckoning is that this business can be easily sold to someone else — after all, this is exactly what bankruptcy can get right in the US,” Johnson wrote on the blog “The Baseline Scenario.”
JPMorgan said its profit in the second quarter was a 36 percent increase over the same period last year, driven by record revenues and strong results from investment and retail banking.
Revenues jumped 41 percent from a year ago to to a record US$27.7 billion.
The profit translated to US$0.28 per share, far above the US$0.04 analysts had predicted. The market had also expected lower revenues of US$25.9 billion.
“JPMorgan’s earnings exceeded the most positive expectations as its profits rose for the first time since 2007,” said Kent Engelke, chief economic strategist at Capitol Securities Management.
Some said the results were skewed by certain segments of the business and that consumer banking remained weak.
“JPMorgan’s earnings were well above forecasts, but the company said its credit card business is unlikely to make money next year,” Scott Marcouiller at Wells Fargo Advisors said.
JPMorgan’s strong quarterly results came on the heels of Goldman Sachs’s report of a profit of US$3.44 billion, also better than expected.
Despite the robust earnings, JPMorgan Chase chairman and chief executive Jamie Dimon said “these results were negatively affected by the continued high levels of credit costs in consumer lending and card services, which we expect will remain elevated for the foreseeable future.”